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Tax Year 2026Updated July 13, 2026

Does Massachusetts Tax Tips in 2026?

Massachusetts is expected to tax tip income in 2026, though final guidance is pending. A draft Technical Information Release (TIR) from October 2025 indicates that the OBBBA tips deduction (IRC §224) does not apply for Massachusetts state purposes. Massachusetts conforms to the IRC as of January 1, 2024 - the OBBBA was enacted in 2025, outside the conformity window. The Massachusetts Comptroller has separately confirmed that OBBBA deductions do not apply to state withholding. Tips remain fully subject to the Massachusetts 5% income tax. Note: This position is based on draft guidance; the final TIR has not yet been published.

How Massachusetts's Tips Tax Treatment Works

Massachusetts uses a fixed-date IRC conformity approach: the state's income tax code references the Internal Revenue Code as of January 1, 2024. Any federal tax law changes enacted after that date - including the entire OBBBA package signed into law in 2025 - do not automatically flow through to Massachusetts unless the legislature specifically adopts them or updates the conformity date.

The Massachusetts Department of Revenue issued a draft Technical Information Release in October 2025 addressing OBBBA non-conformity for tips, overtime, and the senior bonus deduction. While not yet finalized, this draft TIR, combined with explicit guidance from the Massachusetts Comptroller that "No-Tax Overtime" does not apply to state withholding, makes the state's position clear in practice: tip income remains fully taxable at the Massachusetts 5% rate.

Workers who claim the federal tips deduction on their federal return will need to add back the deducted amount when filing their Massachusetts return. This add-back ensures that Massachusetts taxes the full amount of tip income, consistent with pre-OBBBA treatment.

Federal Tips Deduction Quick Reference

DetailValue
IRC Section§224 (OBBBA)
Maximum deduction$25,000 tips
Deduction typeAbove-the-line (Schedule 1-A)
FICA still applies?Yes (Social Security 6.2% + Medicare 1.45%)
MFS eligible?No (MFJ or Single/HoH only)
Effective datesJan 1, 2025 – Dec 31, 2028
Massachusetts treatmentExpected no (pending final guidance)

Worked Examples Comparing Federal and Massachusetts Treatment

Example 1: Restaurant server (single filer, $40,000 income, $15,000 in tips)

Federal return:
Qualified tip income: $15,000
Tips deduction claimed: $15,000 (capped at $25,000)
Estimated federal tax savings: $1,800.00

Massachusetts return:
Massachusetts is expected to not recognize the federal tips deduction. The full $15,000 in tip income remains subject to the Massachusetts 5% income tax. Estimated MA tax on this tip income: $750. Workers claiming the federal deduction must add it back on their MA return. (Final guidance pending.)

Example 2: Bartender (single filer, $70,000 income, $25,000 in tips - federal cap reached)

Federal return:
Qualified tip income: $25,000
Tips deduction claimed: $25,000 (capped at $25,000)
Estimated federal tax savings: $5,500.00

Massachusetts return:
Massachusetts is expected to not recognize the federal tips deduction. The full $25,000 in tip income remains subject to the Massachusetts 5% income tax. Estimated MA tax on this tip income: $1,250. The federal deduction amount must be added back on the MA return. (Final guidance pending.)

Massachusetts-Specific Notes on Pending Final Guidance

Status: Expected non-conformity, pending final TIR. The Massachusetts Department of Revenue's draft TIR from October 2025 clearly indicates that the OBBBA tips, overtime, and senior bonus deductions do not apply for Massachusetts state purposes. The Massachusetts Comptroller has also issued explicit guidance that OBBBA deductions do not apply to state withholding calculations. While these indicators are strong, the final TIR has not yet been published.

This page will be updated when the final TIR is released. Workers should plan on tip income being fully taxable in Massachusetts for 2026 returns, but should check mass.gov/dor for the official final position.

Massachusetts Flat Rate Means Simple but No Relief

Massachusetts imposes a flat 5% income tax rate on most income (with an additional 4% surtax on income over $1,107,750 for TY2026). Unlike graduated-bracket states where lower-income workers might fall into a lower bracket, every dollar of tip income in Massachusetts is taxed at the same 5% rate. A server earning $15,000 in tips owes $750 in Massachusetts income tax on that tip income alone - with no deduction, exclusion, or credit to offset it.

Massachusetts does not use a standard deduction; instead, it provides personal exemptions ($4,400 for single filers, $8,800 for MFJ). These exemptions are typically exhausted by regular wage income before tip income is considered.

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Frequently Asked Questions

Does Massachusetts conform to the federal tips deduction under the OBBBA?
Massachusetts is expected to not conform. A draft Technical Information Release (TIR) from October 2025 indicates that the OBBBA tips deduction does not apply for Massachusetts state purposes. Massachusetts conforms to the IRC as of January 1, 2024, and the OBBBA was enacted in 2025 - outside the conformity window. However, the final TIR has not yet been published, so this position is expected but not yet finalized.
Is the Massachusetts non-conformity on tips final?
Not yet. As of August 2026, the Massachusetts Department of Revenue has issued a draft TIR (October 2025) and the Massachusetts Comptroller has confirmed that OBBBA deductions do not apply to state withholding. However, the final Technical Information Release has not been published. The expected outcome is non-conformity, but workers should monitor mass.gov/dor for the final guidance.
What is Massachusetts's income tax rate on tip income?
Massachusetts imposes a flat 5% income tax on most income, including tips. An additional 4% surtax applies to taxable income exceeding $1,107,750 for tax year 2026, bringing the top rate to 9% - but this threshold would only affect tipped workers with very high total incomes.
Do I need to add back the federal tips deduction on my Massachusetts return?
Yes, if final guidance confirms non-conformity (as expected). Workers who claim the federal tips deduction on their IRS return will need to add back that amount when computing Massachusetts taxable income. This is because Massachusetts starts from its own income definitions that do not include the OBBBA deductions.
Why doesn't Massachusetts automatically adopt the federal tips deduction?
Massachusetts conforms to the Internal Revenue Code as of January 1, 2024 - a fixed date set by state law. The OBBBA, which created the tips deduction, was not enacted until 2025. Because the OBBBA falls outside the conformity window, its provisions do not automatically apply to Massachusetts unless the legislature acts to update the conformity date or specifically adopts the deduction.
Could Massachusetts change its position and adopt the tips deduction?
It is possible. The Massachusetts Legislature could update the IRC conformity date or pass specific legislation adopting the OBBBA tips deduction. However, no such legislation is currently pending. The draft TIR from October 2025 strongly suggests the Department of Revenue's position is non-conformity.